SEC is expected to make a decision on the Ethereum spot ETF later this month. If rejected, analysts at JPMorgan believe that SEC may face legal challenges and lose, similar to the situation with Bitcoin spot ETF.
Summary:
The US Securities and Exchange Commission (SEC) has recently issued Wells Notices to Consensys, Uniswap, and Robinhood Crypto (RHC), the cryptocurrency division of Robinhood, warning of possible lawsuits. According to a research report released by JPMorgan analyst Nikolaos Panigirtzoglou on Wednesday, this notice should be seen as SEC’s continued attempt to strengthen its position that all cryptocurrencies other than Bitcoin and Ether should be classified as securities. Robinhood offers trading of 13 cryptocurrencies including BTC and ETH, and the platform reported strong Q1 earnings due to increased cryptocurrency trading, which may be one of the reasons why it has come under SEC’s scrutiny. JPMorgan believes that SEC’s legal actions against cryptocurrency exchanges seem to aim to influence US policymakers and legislators, as they will ultimately be responsible for formulating relevant regulations for the cryptocurrency market. On the other hand, the analyst believes that there is a high probability that the Ethereum spot ETF applications this month will be rejected, but the market is unlikely to be greatly disappointed as this outcome has already been anticipated. This can be seen from the significant discount of Grayscale Ethereum Trust Fund (ETHE) relative to its net asset value. Furthermore, the analyst also predicts the outcome after the rejection. In October last year, SEC approved 9 Ethereum futures ETFs for trading on the US market, launched by multiple investment firms including ProShares, VanEck, Bitwise, and Valkyrie. One of the key reasons why Bitcoin spot ETF was eventually approved was Grayscale’s legal victory against SEC on August 29 last year. The key to this victory was Grayscale’s protest against SEC’s approval of leveraged Bitcoin futures ETF without sufficient reason to continue rejecting the approval of GBTC’s conversion to Bitcoin spot ETF. Ultimately, the judge overturned SEC’s decision to reject the conversion of GBTC to ETF, stating that “denying Grayscale’s proposal was arbitrary and capricious because SEC failed to explain its different treatment of similar products.” Analysts generally believe that Grayscale’s legal victory provides a basis for future cases, and if rejected again, issuers can refer to this case to file a lawsuit, increasing the risk of SEC losing.